If you are new to contracting, prefer a more hands-off approach to payroll, or are inside IR35 legislation, working via an umbrella company can offer the perfect way to get paid. With so many umbrella companies to choose from how do you know which is the right one for you?
Our blog highlights nine key questions to consider when comparing umbrella companies in the UK
1. Is an umbrella company right for you?
There are many benefits to using an umbrella company, such as minimal administration, quick set up, and you can use the service as and when you wish.
Whether an umbrella company is the most suitable payroll option for your circumstances will depend on several factors. These include your IR35 status, the length of your assignment, and whether or not you want to operate through a personal service company (if this is a viable option).
2. What is the weekly or monthly margin?
Every compliant umbrella company is required by law to make the same tax deductions, and the only thing that will alter your take-home pay is the weekly or monthly margin they charge.
The margin is the amount the umbrella company retains to cover the associated administrative costs of running payroll. The margin is retained before any tax or National Insurance Contributions (NICs) are deducted – as this is more tax-efficient for the contractor.
Some companies will offer special introductory rates when you first sign up – please be aware that the margin may increase once the offer ends.
It is worth finding out what the margin will be once the offer ends and whether this is comparable to other umbrella services available.
3. Are there any hidden or extra fees to consider?
The only way compliant umbrella companies can remain competitive within the market is the margin they charge. Whilst you may be tempted by competitive rates, always check that there are no hidden fees or charges for additional services. These can include but are not limited to:
- Sign up or leaving fees
- Additional charges for insurances
- Additional administration costs
When you register with Umbrella Company UK, there are no unwanted surprises, hidden costs or additional charges, and we will only deduct our margin for the weeks you have worked.
4. Are any insurances offered as part of the service?
Compliant umbrella companies will usually hold three types of insurance: Public Liability, Employers Liability and Professional Indemnity.
Public Liability Insurance will provide cover if something you do causes a member of the public or one of your colleague’s injury, or another sort of loss. You will also be covered it something you do causes damage to their property.
Employers Liability Insurance is a legal requirement for any business with employees in the UK. The policy will cover incidences where you become ill or are injured as a result of the work you have carried out.
Professional Indemnity Insurance protects against the cost of a claim plus any legal fees incurred if your end client claims compensation against you. Usually, this is a result of negligence or a mistake made by you, causing the client financial loss.
When you register with Umbrella Company UK you will benefit from £25 million insurance cover:
- £10 million Public Liability
- £10 million Employers Liability
- £5 million Professional Indemnity
Umbrella companies that cater to sector-specific professions may offer their employees additional types of insurances as part of their package. For example, our specialist driver umbrella payroll service also includes driver’s negligence insurance to ensure you are adequately protected.
5. How will you get paid, and how frequently?
Before you register with an umbrella company, check how often they make payment runs. After all, you want to receive your hard-earned money as soon as possible! Most umbrella companies will run payroll several times a week. However, it is not uncommon for umbrella companies to make payment runs once a week or once a month.
Please be aware your payment frequency will also depend upon the payment terms set by your recruitment agency or end client. Even if the umbrella company runs a weekly payroll if the payment terms are monthly, you will be paid monthly.
When you use an umbrella company, you will either be paid via BACS, CHAPS or faster payments. Nowadays, most umbrella companies will make payments using faster payments which means you will be paid the same day payroll is run. Always check with the provider what payment system they use – as some may take longer to hit your account or may incur additional costs.
Umbrella Company UK runs payroll daily and uses faster payments to ensure you get paid on time, every time.
6. Are all deductions clearly explained to you before you register?
When you register with an umbrella company, you become an employee of that company. As a result, your earnings are seen as taxable earnings and are subject to PAYE tax and NICs. This is in accordance with HMRC rules and regulations.
You will also see additional deductions for employment costs, including:
- Employers National Insurance
- Holiday Pay
- The Apprenticeship Levy and
- Pension contributions (if applicable)
We believe in transparency and our illustrations clearly show the deductions you will see when you register with us. Our expert consultants will explain in detail each deduction and will be happy to answer any questions you may have.
7. Is the umbrella company offering unrealistic take-home pay projections?
Sadly, there are a lot of tax avoidance schemes online offering ‘90% take-home pay’ or more. While many of these may appear legitimate, they are often offshore loan schemes promoting tax avoidance and should be avoided at all costs.
In the UK, the basic rate of tax is 20%, which already means you have 80% take-home pay before you have deducted any NI. Therefore, keeping 90% of your salary is simply not possible if you are using a compliant umbrella company.
HMRC take tax avoidance very seriously, and the introduction of the Loan Charge in 2019 proves how dedicated they are to reclaiming underpaid tax and punishing people who have used tax avoidance schemes. More information about how to spot a tax avoidance scheme can be found here.
8. Is the umbrella company knowledgeable about contractor legislation?
Using an umbrella company takes away a lot of the stress of contracting. However, it is vital to use a company that operates ethically and is knowledgeable about the legislation affecting contractors.
IR35, or off-payroll as it is now commonly referred to, is a key piece of legislation in the contract industry. It came into effect in 2000 as a way for HMRC to collect tax and NIC from disguised employees. Off-payroll in the public sector was introduced in April 2017, and it is due to be rolled out into the private sector from April 2021. It is vital your umbrella company understands the legislation and can advise you of your options.
Using an umbrella company for your payroll means there is no risk of being caught by IR35, because all tax is deducted at source. However, you may have contracts that fall outside the scope of the legislation in the future, and you may be able to use your limited company for these roles. Always use a company that is knowledgeable and can provide you with accurate and informative advice.
9. Is the umbrella company FCSA accredited?
The Freelancer & Contractor Services Association (FCSA) is the UK’s leading industry body dedicated to promoting supply chain compliance for the temporary labour market and raising the standards for service providers who support professional contractors.
By choosing an FCSA accredited umbrella company, you are eliminating any risk of non-compliance with HMRC. You can rest assured they are operating ethically and in line with UK tax law and contractor legislation.
Umbrella Company UK is proud to have achieved FCSA accreditation. We believe there is no better way to show our commitment to compliance and to uphold the highest industry standards within the contractor payroll sector.
Are you interested in registering with Umbrella Company UK?
Founded by experts with over 20 years’ experience in the contractor industry, Umbrella Company UK specialises in providing a compliant, professional and reliable umbrella payroll to the UK’s temporary workforce. When you join us, you will benefit from more than just payroll as you’ll have access to free insurance, a dedicated Account Manager and absolutely no hidden costs!